How to Teach Your Children About Investing at A Young Age
Investing isn’t just reserved for adults. Kids, too, can start their own investments – of course, with the help and guidance of their parents or guardians.
Starting to invest at a young age can increase one’s opportunities to grow their money and improves their chances for success down the road. More importantly, it helps children build a healthy financial foundation and form healthy money habits that will greatly benefit them in their adult life.
5 Tips on How to Teach Investing for Kids
Some people don’t learn financial literacy until it’s almost too late. If you want your kids to build wealth and develop a sense for financial independence while they’re young, here are few tips to get started:
1. Start with the basics of money management.
For children to better grasp the concept of investing, they’ll need to understand the basics of money management first – spending, saving, and budgeting. These concepts are rather simple that even toddlers already have an idea what they mean. However, you’ll need a more practical approach to drive these lessons home.
By letting your kids manage their own money, they will learn to appreciate the value of a dollar. Provide them with a little bit of spending money and make them responsible for certain personal expenses.
To encourage them to regularly set aside a portion of their allowance, give them their own BusyKid debit card for kids. Seeing the money on their account grow over time will motivate them to save more.
2. Introduce the fundamental concepts of investing.
Once your kids have a better understanding of budgeting and saving, it’s time to introduce them to basic investing concepts like bonds vs stocks, risks vs rewards, diversification, and compounding interest. It’s also important to point out the difference between investing and saving.
Simply put, saving is setting money aside for emergencies or future use. On the other hand, investing is spending money to purchase assets in the hopes of making more money.
When explaining investing to little kids, you’ll have to keep things simple. If possible, speak their language and break it down to them in a way they’ll understand. The last thing you want is to get them overwhelmed with information overload.
Kids love stories, so might want to consider starting off with kid-friendly resources that teach children about investing such as The Little Red Hen, Yummi Yoghurt, and The Teenage Investor. If you want to level up the fun factor, you can gamify the process through investment games such as Monopoly or stock market simulation games online.
3. Get them involved.
Don’t avoid discussing money and finances in front of your kids just because they’re still young. In fact, there’s no better way to teach financial literacy to children than by getting them involved in relevant money talks and financial decisions from time to time.
Start by letting them observe while you budget for household expenses and pay the bills or taking them to the grocery with you and teaching them how to comparison shop. Later on, you can explain to them how your household cash flow works (income, expenses, taxes, etc.) and let them in on your investment strategies.
You don’t have to reveal the actual numbers, if you don’t want to, but make sure to go over and highlight key financial concepts and values with them.
4. Let them experience investing first-hand.
As they say, experience is the best teacher. That being said, the only way for kids to get a feel of how investing works is by allowing them to experience it first-hand.
When you think your child is ready, you can slowly transition from savings accounts to investment accounts. For starters, you can get your child involved with their 529 plan. This way, they’ll get a better idea of the time and discipline required to achieve a huge financial goal. You may also open an actual brokerage account for your child under a guardian account or an IRA account (if he/she has been earning an annual income and paying taxes).
If you think it’s too early to let your kids invest with real money, though, you can make use of virtual stock markets to give them a more hands-on experience but without the risk.
5. Set goals and expectations.
Financial advisors help their clients define quantifiable financial goals based on what matters to them; parents can also do the same with their children.
To entice kids to save and invest, make it a point to talk to them about what they’d like to save for or achieve with their investments in the future. It doesn’t matter if it’s a toy or a summer trip to Disneyland; what’s important is that they have a goal to work toward. This will train them to keep their eyes on the prize and eventually make investing a habit.
Start your child’s journey to financial independence with BusyKid!
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